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What Is an Audit Plan?
In the financial world, audit refers to objective evaluation and examination of an organization’s financial statement to ensure that the records match with the transactions made. An employee or a third-party organization, such as a Certified Public Accountant company, can conduct an audit. Every year, businesses receive a review of the following financial statements: cash flow, income, and balance sheet. Also, lenders demand results of annual audits from external firms to fulfill their debt commitments. Moreover, reviews prevent companies from intentionally misrepresenting their statements and committing fraud. The Sarbanes-Oxley Act of 2002 demands companies to undergo an assessment of the internal audits they perform. For external reviews, on the other hand, the U.S. follows the GAAS or generally accepted auditing standards. With all that said, an audit plan is a document that outlines the strategy and steps an auditor must take to perform an audit. Typically, the audit plan will contain procedures for risk assessment and the process one must follow after the evaluation.
According to Statista, in 2018, the revenue of the payroll services, tax preparation, and accounting industry totaled $156 billion.
In the United States, the largest accounting firm as of 2019 was Deloitte LLP, holding a revenue amounting to $21.9 billion.
Additionally, in 2019, the number of auditors and accountants in the U.S. was about 1.28 million.
The Different Audit Classifications
Audits can differ from one business to another. Inspections help a company run its operations smoothly. So, here are the different classifications of audits in alphabetical order.
How To Run an Internal Audit For Your Business
An internal audit is a management key that sees to it that internal business operations are consistent. It allows an organization to supplement the gaps in its processes. Performing one usually takes time, effort, and resources. It is up to an organization to decide whether to perform an audit monthly or yearly according to their need. One must have the following requirement to conduct a review: a written audit plan, an internal auditor, a checklist, and a schedule. So, here are the steps to follow when executing an internal audit.
Step 1: Identify What to Audit
Before running an internal audit, first, identify the processes you want to audit. Also, know the objectives and scope of the inspection, so you will be able to create a schedule. A company must conduct an audit based on its risk assessments. For areas of business with higher risk, a company must frequently schedule and run a check.
Step 2: Create a Timetable
Making a timetable before an audit happens serves as a notice for the departments who will undergo an inspection. The audit program will make them prepare the necessary records and documents needed for an audit. Having surprise audits is not practical since it can create confusion, and it will also threaten stakeholders. Therefore, it is essential to share the audit agenda ahead of time and gain confirmation or approval before conducting one.
Step 3: Pre-plan for an Audit
Preparing for an audit before it happens is vital to simplify and make the auditing process effective. During the preliminary stage, internal auditors must send a plan to a particular department and provide information about the audit process. Information may include the audit goal, scope, criteria, and documentation. An auditor must prepare and understand the procedures and policies he/she will review. For example, studying the buying process may require an auditor to know the procedures and policies of purchasing clearly. Also, an internal auditor must know what document he/she will review.
Step 4: Decide on How To Run the Audit
An internal auditor can conduct an audit by using different methods. These methods include reviewing documents, interviewing workers, or observing them. The proceedings depend on the objective of the auditor. Moreover, the internal auditor must check both electronic and hard-copy records to confirm as well as compliance evidence with the system procedures. Also, an internal auditor must run the audit in an unbiased and fair manner.
Step 5: Document the Findings
The auditor must accurately list all proof gathered by record data or numbers. The goal is to spot breaches in compliance, determine how to fix the gap, and better the process. Findings also include notes from interviews and records of observation.
Step 6: Report the Results
Audit reports must be easy to understand. They serve as proof that an audit was performed. These reports must undergo a review by the department manager and must also gain approval. Moreover, the findings may include an action plan that addresses the identified gaps.
What is an audit checklist?
An audit checklist is a useful tool for differentiating a company’s practices from the requirements the ISO has set. It contains all that an auditor needs to complete and finish an audit correctly and efficiently.
What is a flow chart?
A flow chart is an illustration that visually explains a system, process, or algorithm. Businesses use flowcharts to plan, study, and communicate difficult to understand methods. Also, flowcharts use different shapes such as diamonds, ovals, rectangles, etc. to define steps while connecting them with arrows to display the sequence or flow of the diagram. They can come in the form of a simple chart to a complex diagram showing multiple steps. Examples of flowcharts include process flow diagram, business modeling and notation, business process mapping, functional flowchart, process map, and process flowchart.
What is a cash flow statement?
As mentioned, a cash flow statement is a type of financial statement. It provides information regarding the cash inflows of a business. Also, it includes cash outflows. Cash inflows refer to what a business gets from its continuing operations as well as investment sources. On the other hand, cash outflows refer to all that the company pays for in a specific period. Financial statements offer analysts and investors a picture of the transactions happening within the business. Among all financial statements, cash flow is the most intuitive because it keeps track of business profits through investment, operations, and financing.
An audit plan helps an auditor do his/her work efficiently for the benefit of a company. Having one helps a company keep up with its goals. Without one, companies will be unaware of how their businesses are running and where their profits are going.